The ultimate way to power up your journey to financial excellence is by proactively taking control over the money you spend. That means before you receive any money from your monthly paycheck or another income source, first determine how you’ll want to spend your money.
Do this by setting up a spending plan: a blueprint that helps you make decisions as to where your money should go, instead of waiting until the end of the month to find out where your money has gone.
A spending plan’s principal goal is to help you plan out how much you want to spend on each of your various expense categories. It also helps you ensure you don’t spend more money than comes in each month—fairly important if you don’t want to go into debt (further). Last, it allows you to set aside money for long-term goals, such as savings, paying down debt, or retirement contributions.
These types of payments are often forgotten without a plan. Don’t leave it until you’ve spent most of your money to decide how much you might have left over to assign to long-term goals.
Use a spending plan to help you actively plan for how much to save each month.
As you start keeping track of where your money is going (as we saw in day 3), it should slowly become clear roughly how much you spend on each category. Use that to set up a first-draft plan. If you spend an average of $100 on your weekly trip to the supermarket, then put $400 or $450 down in your spending plan for groceries so you know you’ll be needing that amount each month for your grocery shopping.
Follow a similar strategy to fill in the other parts of your spending until you have a “closed budget,” meaning you know what you’ll be spending every dollar of your paycheck on.
Your first plan will probably not involve a great deal of planning on how you want to spend your money, but rather mainly reflect how you are currently spending your money.
That’s absolutely fine, and, in fact, it’s the best place to start. You can start making small adjustments each month from here on. Once you become more accustomed to creating, updating, and following a spending plan, you’ll be pleased to see how much this will help you when it gets to long-term financial planning